Wynne v. Comptroller of Md.

• Citation: 469 Md. 62,228 A.3d 1129
• Decision Date: 05 June 2020
• Docket Number: No. 12, Sept. Term, 2019,12, Sept. Term, 2019
• Parties: Brian WYNNE and Karen Wynne v. COMPTROLLER OF MARYLAND
• Court: Court of Special Appeals of Maryland

469 Md. 62

228 A.3d 1129

Brian WYNNE and Karen Wynne

v.COMPTROLLER OF MARYLAND

No. 12, Sept. Term, 2019

Court of Appeals of Maryland.

June 5, 2020

Argued by Sean Marotta (Hogan Lovells US LLP of Washington, DC; Steven F. Barley, Hogan Lovells US LLP of Baltimore, MD) on brief for Appellants

Argued by Ryan R. Dietrich, Assistant Attorney General (Brian Oliner, Assistant Attorney General and Brian E. Frosh, Attorney General of Maryland of Baltimore, MD) on brief for Appellee.

Argued Before: Barbera, C.J., McDonald, Watts, Hotten, Getty, Booth, Clayton Greene, Jr. (Senior Judge, Specially Assigned) JJ.

McDonald, J.

This appeal is the latest chapter in litigation between Appellants Brian and Karen Wynne and Appellee State Comptroller. The litigation began when the Wynnes challenged an aspect of the Maryland income tax law – in particular, the credit allowed by State law against a Maryland resident's income tax liability based on taxes the resident paid to other states on income derived from those states. The Wynnes argued that the Maryland tax scheme discriminated against interstate commerce and thus violated what is known as the dormant Commerce Clause of the federal Constitution. Both this Court and the Supreme Court, in closely divided decisions, agreed with that argument.

In response, the General Assembly amended the Maryland tax code to comply with the court decisions, authorized the Comptroller to pay refunds to those taxpayers affected by the provision held to be invalid, and provided for the State to pay interest on those refunds at a rate pegged to the prime rate used by banks, but less than the 13% interest rate paid on certain other refunds.

After the Comptroller issued a refund to the Wynnes in compliance with the legislation passed by the General Assembly, the Wynnes appealed, seeking the higher rate of interest and arguing, among other things, that the interest rate set by the General Assembly violated the dormant Commerce Clause. After an administrative ruling in the Wynnes' favor, the Circuit Court for Anne Arundel County held that the General Assembly's action did not violate the dormant Commerce Clause. We agree.

ILegal Landscape

This case concerns the rate of interest paid on certain income tax refunds. The refunds were authorized, and the interest rate was set, in budget-related bills passed by the General Assembly. The dispute in this case concerns how the dormant Commerce Clause of the federal Constitution may constrain the choices made by the General Assembly when it authorized those refunds and established an interest rate for the refunds. To set the table, we begin with some basic principles.

A. Tax Refunds and Interest

Under the common law, a payment voluntarily made to the State, even if made in error, could not be recovered unless a statute specifically authorized a refund – a principle known as the "voluntary payment doctrine." See Brutus 630, LLC v. Town of Bel Air , 448 Md. 355, 359-63, 139 A.3d 957 (2016) ; see also White v. Prince George's Co. , 282 Md. 641, 651-52, 387 A.2d 260 (1978). To mitigate the perceived harshness of this doctrine, the General Assembly has enacted various statutes authorizing the payment of refunds for mistaken, erroneous, or illegal payments made to the State. Id .

Among the statutes allowing for refunds are the laws relating to tax refunds.¹ A taxpayer who erroneously pays, or is wrongfully assessed, more income tax than is due may make a claim for a refund of the amount of the overpayment. Maryland Code, Tax-General Article ("TG"), § 13-901(a), (c). The claim must be filed within the period allowed by statute. TG § 13-1104. In certain circumstances specified by statute, the refund is to be paid with interest. See Comptroller v. Fairchild Indus., Inc ., 303 Md. 280, 284, 493 A.2d 341 (1985) (payment of interest on tax refund is a "matter of grace" that must be authorized by legislative enactment).

The State pays interest with respect to a claim for refund of an overpayment of income tax only in limited circumstances. Indeed, it seems safe to say that the vast majority of income tax refunds in Maryland are paid without interest.² For example, no interest is paid when money is withheld from a worker's pay for income tax, the withholdings exceed the worker's tax liability, and a refund is paid after a return is filed. See TG § 13-603(b)(2)(ii) (no interest payable for excess withholding). With respect to other refunds of income tax payments, no interest is to be paid if the overpayment is a result of an error or mistake of the taxpayer that is not attributable to the State. TG § 13-603(b)(2)(i). Even when interest is payable on a tax refund, it begins to accrue only at 45 days after a claim is made for the refund. TG § 13-603(a). In other words, no interest is paid if the refund is made within 45 days of the claim.

For those circumstances in which the General Assembly has authorized the payment of interest on tax refunds, it has periodically adjusted the rate of interest. When the State income tax law was first enacted in 1937, that law provided for payment of 6% interest when the refund related to an overpayment that "result[ed] from an error not due to the fault of the taxpayer." Maryland Code, Article 81, § 242 (1937).³ Over the years as inflation has waxed and waned, the General Assembly has, at various times, increased the rate of interest, reduced it, or pegged it to a particular benchmark. See, e.g ., Chapter 139, Laws of Maryland 1975 (increasing rate of interest to 9%); Chapter 615, Laws of Maryland 1982 (rate of interest to be set in relation to "average investment yield on State money"); Chapter 322, Laws of Maryland 2016 (gradually reducing minimum rate of interest).

Pertinent to this case, in 2006, the General Assembly amended the statute to increase the interest rate on income tax refunds to a minimum of 13%. Chapter 587, Laws of Maryland 2006, codified at TG § 13-604(b).(2006).⁴ A decade later, the General Assembly amended that statute to gradually reduce the minimum rate of interest on tax refunds. Chapter 322, Laws of Maryland 2016.

As we shall see, the General Assembly provided specific direction as to the payment of refunds in situations such as that of the Wynnes, as well as the rate of interest to be paid on any such refunds. As we shall also see, that direction came in annual budget-related bills.

B. Balancing the State Budget with the "BRFA"

Income tax proceeds and income tax refunds are part of the revenues and expenditures, respectively, that comprise the State budget. Like many state constitutions⁵ – and in contrast to the federal Constitution – the Maryland Constitution requires that the State budget be balanced. This requirement applies both when the budget is proposed by the Governor, and when it is enacted by the General Assembly. Maryland Constitution, Article III, § 52 (5a).

Under the executive budget system set forth in the State Constitution, the Governor submits to the General Assembly a proposed State budget in a Budget Bill that is to contain "a complete plan of proposed expenditures and estimated revenues" for the next fiscal year. Maryland Constitution, Article III, § 52 (3). With limited exceptions, the General Assembly may only reduce items of expenditure. Id ., § 52 (6). Upon its enactment by the General Assembly, the Budget Bill becomes law without further action by the Governor.⁶ Id .; see generally Richard E. Israel, A History of the Adoption of the Maryland Executive Budget Amendment (March 5, 2004), available at https://perma.cc/SP26-HJDM.

To help carry out the constitutional directive to balance the budget, in recent decades, the Governor has frequently proposed, and the General Assembly has enacted, additional legislation specifically designed to complement the estimates of revenues and expenditures in the Budget Bill to ensure that the budget is balanced. Such a bill often carries a title such as the "Budget Reconciliation and Financing Act" – or "BRFA" for short.⁷ Such a bill combines a variety of measures for limiting expenditures that State law would otherwise require – e.g ., altering statutory spending formulas or spending mandates – or increasing revenues beyond what would otherwise be generated by existing law – e.g. , increasing taxes or fees or transferring funds from special funds to the general fund on a one-time basis – thereby eliminating a gap that might otherwise exist between expenditures and revenues under the Budget Bill alone.⁸ A BRFA is enacted after the enactment of the Budget Bill to which it pertains.⁹

The Maryland Constitution requires that any bill "embrace but one subject." Maryland Constitution, Article III, § 29. In theory, the single subject of a BRFA is the balancing of the State budget. See, e.g. , Bill Review Letter for Senate Bill 192 (2020 BRFA) (April 28, 2020) at p. 2.

C. The Dormant Commerce Clause

State fiscal laws are constrained in certain respects by the federal Constitution. The Constitution expressly authorizes Congress "[t]o regulate Commerce ... among the several States" – a provision referred to as "the Commerce Clause." Article I, § 8, cl. 3. The Supreme Court has long recognized that the Commerce Clause necessarily contains a "negative implication" – i.e ., that states may not discriminate against interstate commerce without congressional approval. This negative implication has come to be known as the "dormant Commerce Clause."¹⁰ This interpretation of the Commerce Clause strikes at "one of the chief evils that led to the adoption of the Constitution" – economic protectionism by states that would burden interstate commerce. See Comptroller v. Wynne , 575 U.S. 542, 135 S.Ct. 1787, 1794, 191 L.Ed.2d 813 (2015) (citing The Federalist Nos. 7, 11 (Alexander Hamilton), and 42 (James Madison)).

Justice Robert Jackson once noted that the Commerce Clause "is one of the most prolific sources of national power and an equally prolific source of conflict with legislation of the...